Discretionary Spending

How It Works

Discretionary spending accounts for roughly 27-28% of total federal spending and includes everything Congress appropriates each year through the 12 regular appropriations bills. In FY2023, total discretionary outlays were approximately $1.7 trillion, split between defense (~$800 billion) and non-defense (~$900 billion). Defense discretionary funds DoD operations and maintenance, military personnel pay, weapons procurement, research and development, and military construction. Non-defense discretionary covers the budgets of virtually every federal agency outside the entitlement programs: NIH research, highway construction, Pell Grants, border security, national parks, FBI operations, air traffic control, and embassy operations. Discretionary spending is capped by statute, currently by the Fiscal Responsibility Act of 2023 through FY2025, with automatic sequestration cuts if appropriations exceed the caps. The Budget Control Act of 2011 and its successor laws have imposed similar caps for over a decade. Because discretionary spending is renegotiated annually, it is also the most politically contested category, most government shutdowns and CR fights are over discretionary levels, not mandatory spending. The discretionary share of federal spending has been shrinking for decades as mandatory programs grow, from roughly 42% of outlays in FY1983 to around 27% in FY2023, a structural shift that limits Congress's year-to-year fiscal flexibility and has implications for federal contractor spending (which is overwhelmingly funded from discretionary accounts). Roughly 85% of federal contract obligations flow through discretionary appropriations, meaning that when Congress caps discretionary spending, contract markets feel the squeeze first. Conversely, supplemental appropriations classified as "emergency" spending fall outside the caps and can rapidly expand contract opportunities, as happened during COVID-19 ($2.2T CARES, $900B December 2020 supplement, $1.9T ARPA) and Ukraine/Israel security assistance.

Related Terms

• Mandatory Spending, Federal spending required by existing law without annual Congressional approval, primarily Social Security, Medicare, Medicaid, and interest on the debt.
• Appropriation, A law passed by Congress that authorizes federal agencies to spend a specific amount of money for a specific purpose during a defined period.
• Defense Spending, The portion of the federal budget dedicated to national defense, including military personnel, weapons systems, operations, and maintenance, totaling over $850 billion annually.
• Continuing Resolution (CR), A temporary funding measure passed by Congress when it fails to complete the annual appropriations process, keeping the government funded at prior-year levels.